Page 181 - CW E-Magazine (12-3-2024)

Special Report

Risk assessment and mitigation strategies for

businesses in the chemical sector

ndia – a $7-trillion economy. That’s indicates that the business poses KAUSHAL SAMPAT
the vision the government has set an Average Credit Risk. Due to the Founder
Ifor the country to achieve in the current geopolitical risks (Israel/ Rubix Data Sciences
next six years. To achieve this target, Gaza; Red Sea attacks by Houthis
every sector in India’s economy will that disrupt shipping; continued across companies and geographies
have to step up. All eyes are on the conflict between Russia and Ukraine; can help mitigate this risk by spread-
chemicals sector, considering the usage etc.), the external risk environment ing credit risk across multiple buyers.
of chemicals across diverse industries is volatile. It is, therefore, imperative
and in the everyday lives of people. for companies to conduct risk Non-availability of foreign exchange
As per the Government, the size of the assessments of their counterparties in buyers’ countries
chemical sector was $220-bn in 2023, around the world regularly to manage Lately, several countries, including
and it is projected to grow to $383-bn and mitigate risks. Egypt, Pakistan, Ghana, Lebanon,
by 2030. Where there is such a high Bangladesh, Malawi, Ukraine, Tunisia,
growth, there are bound to be risks, Here are some of the most impor- Sri Lanka, and Gambia, have been
particularly, credit, supplier, and com- tant risks that companies in the chemi- facing severe shortages of foreign ex-
pliance risks. cal sector must factor into their risk change. Consequently, even if buyers
management plans along with some in these countries want to make timely
Credit risk of chemical sector com- actions to mitigate them: payments to Indian chemical suppliers,
panies in FY24 they are unable to do so due to forex
While assessing the credit risk Credit risk shortages. Hence, it is imperative for
of 3,895 chemical sector businesses For companies in the chemical sec- Indian chemical exporters to plan their
in FY 2024 (YTD) versus FY 2023, tor, where large investments, long-term cash flows to account for significant
Rubix Data Sciences found that the contracts, and complex supply chains delays in receiving funds from buyers
credit risk has broadly remained are the norm, effectively managing in impacted countries.
unchanged. When measured on a credit risk is crucial for sustainable
100-point scale (0 = Highest Risk; growth and profitability. Delayed payments due to ambiguous
100 = Lowest Risk) the median credit policies and terms
Rubix Risk Score of these 3,895 Concentration risk Establishing clear credit policies
chemical sector businesses was 63 in Relying too heavily on a small and terms is essential for managing
FY 2024, compared with a median number of customers increases the credit risk effectively. Businesses
Rubix Risk Score of 62 in the pri- risk exposure of chemical suppli- should define credit limits, payment
or year. A Rubix Risk Score of 63 ers. Diversifying the customer base terms, and credit evaluation criteria
upfront. Clear communication of these
Median Rubix Score by Month and Year policies to customers helps set expec-
80
Overall Median Score tations and ensures compliance. Addi-
tionally, implementing robust credit
monitoring systems enables businesses
Median Rubix Score 60 real time and identify potential red flags
70
to track customer payment behaviour in
promptly.

Default risk
Credit defaults are a reality that
exporters will experience at some point of
50
February-2022 March-2022 April-2022 May-2022 June-2022 July-2022 August-2022 September-2022 October-2022 November-2022 December-2022 January-2023 February-2023 March-2023 April-2023 May-2023 June-2023 July-2023 August-2023 September-2023 October-2023 November-2023 December-2023 January-2024 time. Hence, Credit Insurance is a valu-
able tool that can help safeguard chemi-
Month and Year cal suppliers against the risk of non-

Chemical Weekly March 12, 2024 181

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